Caution -- Building Your Own House And Acting Like A Builder Can Expose You To Liability For Defective Construction

Posted on Oct 27

By harley erbe

On October 25, 2017, in Sokol v. Morrissey the Iowa Court of Appeals considered a rare case in which someone not in the construction industry decided to serve as the builder for his own house and was later sued for defective construction. The court of appeals concluded that someone who builds their own house as a hobby can, at least under the circumstances of this case, be considered a "builder-vendor" and liable for defective construction. The key is whether the person serving as their own builder or general contractor plans to live in the home or intends to sell it.

The Morrisseys decided to build a home for their retirement. Bob Morrissey, who had never built a home before, acted as the general contractor for the project. Bob began the home-building process by hiring an architect to design the home and purchasing a tract of land. He listed himself as the owner and developer of the land. The Morrisseys also created an informal entity, “Our Home Builders,” which Bob explained was meant to help keep home-building expenses separate from personal expenses. Bob created business cards for “Our Home Builders” and listed the Morrisseys’ home address as the “business address.” He gave the cards to businesses involved with the project. With assistance from a number of subcontractors, Bob began construction.

When Bob had nearly completed construction and the Morrisseys prepared to move, Eileen Morrissey became ill. They decided against moving and contacted a realtor about selling the newly constructed home. On the full listing of the property, the realtor identified the builder of the home as “Our Home Builders.”

The Sokols began experiencing problems within three months of moving into the house. They first noticed issues with the geothermal unit. Next, electrical issues arose. The Sokols were unable to locate the security system’s wiring Bob claimed to have installed. And then various faucets, both inside and out of the home, started leaking. Nearly five years after the sale, the Sokols wrote to Bob requesting he remedy several issues they continued to experience with the home, including flooding in the basement; leaking from the roof, gutters, and windows; cracking in the siding; rocks falling from the retaining wall; improper installation of the geothermal unit and air conditioner; and faulty electrical wiring. The Sokols eventually filed suit against the Morriseys, including a claims for defective construction.

On appeal, the issue was whether Bob Morrissey was a "builder-vendor" and subject to liability for defective construction. The trial court found that the Sokols could not recover for construction defects because Bob Morrissey did not fit the definition of a builder-vendor. Under Iowa law:

"[A] person who is in the business of building or assembling homes designed for dwelling purposes upon land owned by him, and who then sells the houses, either after they are completed or during the course of their construction, together with the tracts of land upon which they are situated, to members of the buying public. The term “builder” denotes a general building contractor who controls and directs the construction of a building, has ultimate responsibility for a completion of the whole contract and for putting the structure into permanent form thus, necessarily excluding merchants, material men, artisans, laborers, subcontractors, and employees of a general contractor."

The dispute concerned whether Bob Morrissey built the house with the intent of living in it, in which case he wouldn't be considered a builder-vendor, or with the intent of selling it, in which case he'd be a builder-vendor. The court of appeals decided that Bob Morrissey was a builder-vendor and could be sued for defective construction. The Morrisseys finished construction of the home with the intent to sell it. In addition, the Morrisseys marketed the completed home to the general public. But most importantly, the Morrisseys presented themselves as builder-vendors. The Morrisseys did not disclose Bob’s lack of expertise in home-building. Instead, they promoted the home in a commercial realtor’s listing as being constructed by what sounded like a professional entity. The advertisement stated: “This unique home was built by Our Home Builders showing overwhelming detail, pride in workmanship and quality throughout.” The court of appeals thus sent the case back to the trial court for further proceedings on the Sokols' construction defect claim.